Krugman's Strange View About Planning for the Future
By David Henderson
Paul Krugman, in a post today titled “Debt, Diversion, Distraction,” argues, as his title implies, that we get diverted and distracted from more important issues if we worry about the coming high deficits and debt. His reasoning is faulty.
First, and this is not the faulty reasoning part, he uses data from something called the CBPP without ever identifying that organization. A quick Google shows that CBPP stands for the Center on Budget and Policy Priorities. Here’s the study that he must be referring to. It does, as he says, show that the future outlook on federal government looks rosier than the CBPP’s projection looked 6 years ago.
But why not use data from the Congressional Budget Office? All projections of the future turn out to be wrong, but the CBO probably has less of an axe to grind than the CBPP. And, while the CBPP study claims that in 2046, the ratio of debt to gross domestic product will be 113 percent, the CBO’s projection, as of July, was a higher ratio: 141 percent. That’s a pretty big difference.
Now to the faulty reasoning part. Krugman writes:
So proposals to “deal with” the supposed debt problem always involve long-term cuts in benefits and (reluctantly) increases in taxes. That is, they don’t involve actual policy moves now, or for the next 5-10 years.
So why is it so important to take up the issue right now, with so much else on our plate?
Put it this way: yes, it’s possible that we may at some point in the future have to cut benefits. But deficit scolds talk as if they offer a way to avoid this fate, when in fact their solution to the prospect of future benefit cuts is … to cut future benefits.
But is there no difference between putting in place now policies that would cut benefits from, say, 10 years on, and Krugman’s apparently preferred alternative of waiting 10 years and then cutting benefits immediately? Any person who plans his future will tell you that there’s a huge benefit. If I can know that my Social Security benefits 10 years from now will be, say, 20% lower than I had thought due to means testing, I can plan my saving now. But if I simply think that the government will cut benefits 10 years from now and I don’t know whether that’s true and even if I think it’s true, I don’t know who will get cut and by how much, it’s harder to plan.
Krugman seems to anticipate that objection, because here is his next paragraph:
If you try really hard, you can argue that locking in policies now for this future adjustment will make the transition smoother. But that is really a second-order issue, hardly deserving to take up a lot of our time. By putting the debt question aside, we are NOT in any material way making the future worse.
Does it look as if I tried “really hard” to do the reasoning in my paragraph immediately preceding this quote? And how he does he know that it’s second-order? To a lot of people currently aged 45 to 65, it’s pretty important.